The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article.
This is my favorite sports week of the year: the Final Four Men’s and Women’s NCAA National Basketball Championships followed by the Masters’ Golf Tournament in Augusta, Georgia. Going into Saturday night’s semi-final contests in the men’s tournament in Indianapolis, 3 public universities and one private made it through the three week one-and-done 64 team tournament: Duke beat Michigan State in the opener, and Wisconsin beat previously unbeaten Kentucky in the nightcap.
The markets in which the Final Four have their main campuses, illustrate the uniqueness of our health system’s challenges. Consider these data from InterStudy and the Dartmouth Atlas, two highly reputable resources used extensively in the health services research:
How are they alike?
- All four markets feature a major regional Blue Cross plan as a major payer and rapidly consolidating provider market wherein 2-3 regional systems are aligning with physicians.
- All are urban markets home to several large employers including the universities themselves.
- Each is in a state wherein Medicaid is managed through private managed care organizations or managed care models.
- And, in each, insurers and employers have been shifting risk gradually to providers through shared savings programs and limited direct contracting.
But they differ in an important way: utilization. Consistently, use rates in Lexington exceed the others. Using a rank sum for the 5 measures related to utilization above, Lexington far exceeds the others. Why?
Answers to variable utilization in healthcare range widely. They boil down to 3:
- The healthiness of a community determines a substantial amount of utilization. Older populations use more services, and environmental conditions—air quality, food supply, eating habits and socio-economics, literacy, et al correlate to different levels of demand based on disease prevalence.
- The supply and types of services that hospitals, physicians and allied health providers “sell” creates variable utilization. It’s “Field of Dreams” in healthcare: if we build it, they come. Providers, especially physicians, in the healthcare industry enjoy unusual latitude in determining treatments that are appropriate, but vary greatly from community to community in how they make those decisions. The only consistency is that in most communities, patients follow their physician’s recommendation, whether the test or procedure is medically necessary or not. Ironically, over- utilization is widespread in certain categories where the financial gain is strongest, but under-utilization for services, especially preventive and mental health services, otherwise less profitable is equally evident in comparing communities.
- And the level of risk sharing by payers. Variable utilization is also the result of payers– Medicare, Medicaid, private insurers, large employers, and individuals—that focus (or not) on reduced inappropriate variation or standardization around an optimal use rate in risk sharing arrangements with providers. Until recently, these efforts were led by private insurer “utilization review” efforts and “national coverage decisions” by Medicare, but increasingly private plans and large employers are becoming activists in risk sharing arrangements wherein appropriate utilization is closely monitored.
The industry’s transition from fee for service payments in favor of value-based purchasing incentives is certain to lead to some uncomfortable discussions in communities: why are utilization rates and clinical results, severity-adjusted, so variable? What’s the avoidable cost of an unhealthy environment, poorly designed incentives, or paying for tests and procedures that are not medically necessary? And how well are providers able to operate in an environment in which their income and reputation are at risk for their collective results—outcomes, consumer experience and satisfaction, appropriate utilization and costs?
The traditional thinking is that all healthcare is local. There’s a long list of industries that held similar beliefs until the likes of AutoNation, CarMax, NetFlix, Zappos, and others leveraged fresh thinking and innovative technologies to disrupt the status quo. The effectiveness of a community’s healthcare system and its relationships with payers is not an issue just for the industry: it’s a matter central to community’s long-term viability.
I do not know who will win the Duke-Wisconsin match-up Monday night. I had both in my Championship Game bracket by sheer luck and I will be watching closely from Augusta. I know for sure that some communities will win where their providers are prepared and their payers willing to share risk based on clinical coordination that’s necessary and costs that are reasonable. There will also be losers.
The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.
©2015 Navigant Consulting, Inc.